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Exemptions protect assets in New York bankruptcy

The economy has changed in many ways since the collapse in 2008. People have seen many changes, and they have been difficult for many people. Even people who seem like they should be able to make their ends meet are having difficulty.

Take the recent case, a partner at a prestigious New York law firm. This man makes a reported $375,000 a year - or $31,500 a month. However, as a result in the economic downturn, a costly divorce and other financial difficulties, the man has had to file for personal bankruptcy.

According to reports, despite the man's seemingly large income, he actually has a monthly deficit of $52. His expenses include over $10,000 a month in alimony and child support, income taxes of nearly $7,500 a month, rent of $2,460 a month and other expenses including transportation, contributions to his retirement account, utilities, medical costs and cell phone service. When all is said and done, this man cannot afford to pay all of his bills.

This situation is not unusual in New York. Many people may be faced with a situation where they have income but they don't have the resources after their expenses to actually meet all their obligations. In these cases, bankruptcy - including Chapter 7 bankruptcy - can be a viable option for many individuals.

Under Chapter 7 bankruptcy, however, the court will liquidate certain assets to help pay for expenses. People may fear losing all their personal possessions if they file for bankruptcy. However, people should understand that bankruptcy law provides certain exemptions that protect certain assets. In the case of the New York lawyer, for example, his $1 million retirement savings would be protected in the bankruptcy from his creditors.

Those considering bankruptcy should know how state exemptions and federal exemptions can be used to protect their property. Filing for bankruptcy can be a good option, with the right plan in place.

Source: The New York Times, "A Lawyer and Partner, and Also Bankrupt," James B. Stewart, Jan. 24, 2014

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